Apple Blows Wall Street's Mind Again

Yet again, Apple's quarterly earnings vaulted over the bar set by Wall Street analysts. The company reeled in $39.2 billion in revenue, over $2 billion more than expected for its second fiscal quarter. The news ignited AAPL shares, which had been languishing in the doldrums for days. However, the conditions that put them there may still be present after the Q2 excitement fades away.

Apple announced yet another fiscal quarter that made Wall Street's head spin, sending shares skyward in after-hours trading.

Revenue was up 59 percent for Apple, bringing in US$39.2 billion compared to the $24.67 billion it reporter a year earlier. The tech giant reported quarterly earnings Tuesday of $12.30 per share, up from $6.40 a share from the same period a year ago. Street expectations were closer to $10.04 per share earnings on $36.8 billion in revenue.

The gains came from stronger than expected device sales. The Cupertino company sold 35 million iPhones, 11.8 million iPads and 4 million Macs in its latest quarter. iPhone sales jumped 88 percent from the year earlier. With the newest iPad fresh on the market, unit sales increased 151 percent from a year ago. Even Macs sales saw a 7 percent unit increase from the same time a year ago.

Characteristically, Apple's projected guidance was the one place where analysts had higher expectations for the company. Apple said it expects $8.68 earnings per share on a revenue of $34 billion for the fiscal third quarter, but Street expectations are closer to $9.93 per share on a revenue of $37 billion.

An Embarrassment of Riches

Prior to revealing its earnings, Apple's stock had been on a downward slope for the past 10 out of 11 trading days. It hit an all-time high of $644 on April 10, but since then has been seen slipping bit by bit. At the close on Tuesday, it was trading around $560 a share, down about 2 percent on the day. Immediately after earnings came out, though, after-hours trading catapulted AAPL value past $600.

Despite the higher than expected earnings, though, one of the reasons for the slump still remains. With the cost of the iPhone so high for wireless providers (which buy smartphones for hundreds of dollars more than the typical $200-with-contract price offered to end users), there is concern that carriers will demand that Apple lower its prices. Some have already started passing small increases in costs to consumers, such as raising upgrade fees, like Verizon recently did. But with Apple reporting such huge gains, it's reasonable for carriers to try to gain more from selling the iPhone, according to Anindya Ghose, associate professor at the NYU Stern School of Business.

"Apple makes a lot more money off iPhone sales than anyone else," he told MacNewsWorld. "If we break down the cost structure of the iPhone, and subtract that total from the phone's $630 average selling price, you come up with an operating profit of $330 per phone."

Battles for control and pricing power between Apple and its carriers are nothing new, said Ghose, and it's likely the two sides will continue to bicker. Even with the higher than expected earnings for Apple, the stock could still face some of the same headwinds it's seen over the last two weeks.

"The Apple versus telecom provider battle is an interesting one and is a continuation of many previous wrangles," Ghose said. He cited some of Apple's previous attempts to take revenue away from carriers, including iMessage and FaceTime, which use a WiFi or data network connections to send messages and make calls, rather than using the cellular connection that would charge users via the carrier.

"That opens doors for a system where the traditional telecom operator is not involved," said Ghose.

Android Lurking

Besides pressure from carriers, Apple faces constant competition from its competitors, mainly makers of Android devices. A report from InMobi this week showed that iOS is still in the lead over Android in North America since January of this year, grabbing 37 percent compared to Android's 34 percent.

"Apple is globally dominant at the individual device level, with iPhone being the single most popular handset," Anne Frisbie, vice president and managing director of InMobi North America, told MacNewsWorld.

The report is quick to point out, though, that competition between the two remains "fierce" and it was around this time last year that Android was able to inch ahead of Cupertino. Especially important are the overseas emerging markets, according to the report. Especially in China, Apple is making gains but still has its work cut out for it. Thanks to the many avenues and inlets available to the freely distributed Android platform, it has more routes to success in different global settings, said Frisbie.

"Android is currently larger than Apple at the global operating system level due to their open platform strategy, which allows for a variety of different price points, manufacturers and distribution strategies," she said.

Apple didn't respond our requests for comment.

Rachelle Dragani is a freelance reporter based in Brooklyn, NY. She enjoys staying on top of e-commerce deals, reporting on what new gadget is coming your way, and keeping tabs on anyone trying to hack into your info. Feel free to e-mail her at rachelle.dragani@newsroom.ectnews.com.